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Fund Update: Newton Rules the Markets

Only gravity was at work in the markets and it seemed as if it only falls. Net asset value of all categories -- equity and bond funds fell alike. The only winner was cash because it didn't lose. Net asset values were wrecked as equity and debt markets tanked on fears of war.

Since the attack on America, the Sensex has lost heavily -- 598 points or nearly 19 per cent, the highest among global markets. All set of investors – institutional as well as individual investors, ran for cover. Frontline technology stocks continued to be battered with fears that earnings will take a big hit, as recession looms large over America. No wonder, it was a nightmare for tech fund investors this week with an average loss of 14.6 per cent. As many as six tech funds lost over 15 per cent while ING Growth Portfolio, the tech heavy diversified equity fund shed nearly 17 per cent. With a top-rung heavy portfolio, Pioneer ITI Infotech shaved 25.6 per cent, the steepest fall. For the already fallen technology funds, investors were beginning to think of limited downside. This drop simply placed technology funds in the write-off category in investor's portfolio.

The market at its 8-year low, there isn't substantial downside for equities. Fundamentally and in historical perspective equities look very attractive today with the price to book value ratio of Sensex at 1.9 and a dividend yield of 2.37 per cent. But for these numbers to translate into price gain, investors have to think. And its not clear still if they are willing or when they begin thinking fundamentally.

The bonds behaved in a manner disproving "Bonds are for gentlemen". They turned highly volatile as prices fell in sympathy for a diving rupee. While RBI's intervention in forex and bond markets stabilised the sentiment, war threats again triggered selling pressure. The losses for debt funds were far sharper this week – while gilt funds lost an average 0.97 per cent, the conservative medium-term bond funds were a close second at 0.90 per cent. Some jittery investors pressed redemption in debt funds on fears of further losses. Cash or short-term debt funds were the only black spots on the red map with some modest gains. The bonds hence the bond funds will remain volatile with uncertain economic outlook -- with prevalent risk of falling rupee and an oil shock.

Fund Update: For the week ended September 21, 2001, the BSE Sensex lost 230 points (8.12%) while the broad based BSE National Index fell by 120.65 points (9.02%). The top losers for the week were Pioneer ITI Infotech (25.6%), Alliance New Millennium (19.51%) and K-Tech (16.98%). LICMF Tax Plan was the only gainer for the week with a modest gain of 0.47%.